Social Security Matters – Should I Claim Early Due To Social Security’s Financial Condition?

Dear Rusty: I plan on retiring at 62, one year from now. I have been coached to (if financially possible) leave my Social Security earnings for my wife to collect in the future if I die, considering that she was a homemaker for the majority of her income earning years.

My instinct is to get Social Security coming (I understand I’m settling for a lesser amount at age 62) as soon as possible considering the forecast of our government’s inability to fund Social Security for the rest of my life. No one has a crystal ball, and no one knows what our government will or will not be able to fund even into next week, so we weigh what we know and see, and then decide. Is my question clear? Signed: Skeptical

Dear Skeptical: Well, your question is clear but contains two opposing factors – you say you wish to provide well for your wife if you die, but also say you wish to claim at age 62 because you’re not confident that Social Security (SS) will be there in the future. Yet claiming at age 62 will mean the lowest possible survivor benefit for your wife because her benefit as your widow will be the amount you are receiving at your death. I’ll try to put all this into perspective for you.

Although Social Security is facing some future financial issues, it will never go bankrupt and be unable to pay benefits. The worst that could happen, if Congress takes no action beforehand, would be that benefits will be cut by about 22% if the SS Trust Fund is fully depleted in 2033 (right now, reserves in the Trust Fund are used to supplement SS expenses because SS revenue is currently less than program costs). If that happens, Social Security can only pay out as much as it brings in. But that almost certainly won’t happen, because Congress won’t permit it to.

Congress already knows how to fix Social Security’s financial issues – they just currently lack the political will and bipartisan spirit to implement the changes needed. But there’s little doubt that they will fix the issue before allowing an across-the-board benefit cut to over 65 million beneficiaries (because seniors vote). FYI, there was $2.9 trillion in reserves in the Social Security Trust Fund at the end of 2020.

I don’t recommend you make your Social Security claiming decision based on fear of the program going bankrupt – it won’t. Even if Congress doesn’t act and a benefit cut is imposed in 2033 (which is highly unlikely), a 22% cut to your age 62 benefit amount would be more painful than a 22% cut to your benefit at your full retirement age (FRA) which would be about 30% higher than your age 62 benefit amount.

The longer you wait to claim, the higher your benefit, and your wife’s survivor benefit, will be – even in the unlikely event of a later cut in benefits. Instead, I suggest you make your claiming decision based only upon your personal circumstances.

If you wish to increase your wife’s survivor benefit, then waiting longer to claim is the way to do that. If you retire from working at age 62, Social Security’s earnings test won’t apply to you (the earnings test limits how much you can earn while collecting early SS benefits), thus you can certainly claim at 62 if you so wish. But it’s important to consider the consequences of claiming early (including a lower survivor benefit for your widow) and make a decision based on facts, not fear of Social Security going bankrupt – because it won’t.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.